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French warned on austerity treaty

Bruno Waterfield, Paris

Shotgun wedding: Activists from Oxfam and the Attac group in Berlin ''marry'' Angela Merkel to Francois Hollande and his ''taxes against poverty'', which would put a levy on financial transactions. Photo: AFP

GERMANY and the European Union have warned France's Socialist president-elect Francois Hollande that he will not be permitted to renegotiate a eurozone austerity treaty, despite it being rejected by French voters.

Mr Hollande made renegotiation of the eurozone's fiscal pact, a treaty signed by 25 EU countries, a central plank in the campaign that swept him to power on Sunday night.

During his victory speech, he declared ''a new departure for Europe and hope for the world'' that showed ''austerity can no longer be the only option''.

Mr Hollande later told a French website that measures must be taken to ''restore confidence between populations and Europe'', otherwise ''we will see a rise of populism that will eventually hinder the European project, and one day break up the euro''.

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But German Chancellor Angela Merkel has ruled out any renegotiation of the fiscal pact, signalling a major political confrontation between Germany and the new French leader.

''We in Germany are of the opinion, and so am I personally, that the fiscal pact is not negotiable,'' she said.

German taxpayers have put €211 billion ($A270 billion) on the line to bail out countries such as Greece, and Germany's patience is running out with countries that reject the prescribed economic medicine of debt reduction while continuing to demand the handouts.

British Prime Minister David Cameron was last night also set to declare that there is ''no going back'' on harsh spending cuts.

In a rare joint appearance with his coalition partner and Deputy Prime Minister Nick Clegg, Mr Cameron was expected to warn the damage done in the financial crash of 2008 was ''greater than anyone thought''.

Mr Cameron and Mr Clegg already faced disquiet among their MPs after the economy slipped back into recession and the coalition parties received a hammering in last week's local elections.

''I don't hide from the scale of that challenge - or from the message sent by voters in many places in last week's elections,'' Mr Cameron was expected to say. ''I'm listening. I'm leading. I get it. But this government is determined to do whatever needs doing to succeed.''

In his remarks, Liberal Democrat leader Mr Clegg was expected to dismiss claims the coalition has an ''ideological obsession'' with shrinking the size of the state, arguing there was a ''clear moral responsibility'' to deal with the deficit and not leave it to future generations.

Some Conservative MPs have been setting out their agenda for an ''alternative Queen's Speech'' - including demands for a referendum on repatriating powers from Brussels.

In Italy, local elections saw a surge in support for the 5-Star Movement of comic-turned-politician Beppe Grillo, who favours Italy leaving the euro. Mr Grillo claimed his party received 14 per cent of the vote across municipalities.

International Monetary Fund chief Christine Lagarde, formerly a finance minister under defeated French President Nicolas Sarkozy, responded to election results across the continent with a call for ''gradual'' fiscal cuts.

''Austerity versus growth is very much the debate of the hour,'' Ms Lagarde said in a speech at Zurich University in Switzerland. ''I would argue it is not 'either or'. We can design a strategy that is good for today and good for tomorrow.''

Dr Merkel's only concession to Mr Hollande has been to say Germany will discuss new policies to boost economic growth, but only if he agrees to ratify the fiscal pact signed by Mr Sarkozy.

A spokesman for the European Commission also said agreements between France and the EU were binding.

Mr Hollande is to be sworn in as president on May 15, and in talks in Berlin late next week Dr Merkel will remind him his support for the austerity pact is the condition for European Central Bank support for struggling financial institutions, including French banks.